Petroleum price going down is good for people. Petroleum prices going down without political considerations is even better, for the country. But you can’t keep all people happy at all times. So there has been criticism – both ways. There are people saying the petrol price could have instead been reduced by another Rs6/liter, but the government opted to max out the Petroleum Levy. Others rue the missed “golden” opportunity to tax petroleum products higher.
Motor gasoline in Pakistan today is cheaper than most states in the United States, and some in the UAE. This tells how countries have ramped up taxes, pouncing on the opportunities. In Pakistan’s case, the import parity formula and the fact that imports were on hold for a little while – have also played a role in extremely low ex-refinery prices.
Be that as it may, the tax incidence on both petrol and HSD is at a record high in absolute terms, let alone in percentage terms. Over 56 percent of petrol price now relates to GST or PL. This, apparently is not enough for some asking the Ehsas program to be funded instead – by earning extra bucks, and not lowering prices.
The advocates of higher price are also calling for higher indirect taxation, in the form of GST – as that is the only option left to increase prices. The PL is already at its maximum allowed limit of Rs30/ltr and would require amendment in the Finance Act through the parliament to charge even a penny more in this account.
On GST, the government had agreed with the IMF to not issue any SROs on petroleum taxes, which meant the standard GST of 17 percent would continue. It has continued ever since the IMF program. That said, it will still have been the possible route, as there is no legal binding with the IMF deal, and Pakistan has not necessary kept all the promises in the short span of the current program.
So how does the tax collection look so far? It looks very promising. How promising? The combined GST and PL collection on petrol and HSD at Rs406 billion in 10MFY20 has already surpassed the full year FY20 collection. Impressive. But with such steep revenue targets, petroleum’s contribution should grow too. Yes, and it will. The PL collection target of Rs206 billion was nearly met with a full quarter to go. How much is expected from PL in 4Q alone? Even with current sales numbers, the 4Q PL alone should fetch another Rs100 billion – Rs92 billion over and above the target. Is that good enough growth? You bet.
The combined PL and GST collection too is slated to be the highest ever, even as GST in absolute terms has come drastically down. The total collection could well be around Rs550 billion for petrol and HSD combined in FY20 – 37 percent higher than last year and 23 percent higher than previous high seen in FY18.
Tax it more just because the products price has come down? Some say this will lead to higher consumption, and invariably higher imports. That it will. But higher consumption will not only have the import consequence – it will also mean greater economic activity at home – and never forget the sales tax “opportunity” at import stage.
The question whether a rupee passed on to the petrol consumer is worth more or less than a rupee directed at someone registered in the Ehsas program, needs to be asked alright. Other questions too need to be asked. Whether the resultant increase or decrease in inflation because of petroleum price, carry a greater significance in terms of fiscal savings (the revenue vs interest servicing debate). Also ask and research if taxing the cola and cigarette makers higher, could serve the purpose instead.
And finally, this petroleum price reduction is not even relief per se, as the Covid Stimulus Package had earmarked Rs75 billion in petroleum relief. Not a penny has been needed to be used. Surely, Ehsas would not mind being richer by another Rs75 billion.